Crown's ruling family accused in lawsuit Shareholders, workers allege costly misdeeds by Rosenbergs, board

Oil industry

December 16, 1998|By William Patalon III | William Patalon III,SUN STAFF

Shareholders and locked-out workers of Crown Central Petroleum Corp. yesterday filed a lawsuit against key company officers and board members, alleging that the group has essentially wrecked the company through mismanage ment.

The suit was filed in state court in Houston where the Baltimore-based company has its largest refinery and where one of the top officials is allegedly a resident. The lawsuit specifically targets Crown Chief Executive Officer Henry A. Rosenberg Jr.

It contends that Rosenberg, his two sons and their hand-picked board have destroyed much of the value of the company, which refines gasoline that it either sells through its network of convenience store/gasoline stations or wholesales to companies such as Exxon Corp.

"This action complains of the Rosenbergs' abuse of their fiduciary and control positions at Crown and [the] defendants' reckless and gross mismanagement of Crown over the past several years," the suit says. "Crown's revenues have declined by 25 percent over the past several years and it has lost money in seven of the last eight years -- over $122 million."

Crown officials contend that the suit is just another piece of the war that locked-out union workers are waging against the company.

On Feb. 6, 1996, 252 workers were escorted from the company's Pasadena, Texas, refinery or called at home and told not to report to work. The company said contract negotiations had become acrimonious and that workers were committing acts of sabotage so serious that the company had no choice but to lock the workers out of the plant. The workers deny this but have since waged a "corporate campaign" against Crown that includes urging boycotts of Crown stores and gasoline.

"Crown has seen all this before in one form or another since February 1996," said Joseph M. Coale, the company's director of dTC corporate communications. "This lawsuit is obviously a little different strategy. Nevertheless, it supports the corporate campaign against Crown Central."

The civil action is known as a "shareholders' derivative action" which charges mismanagement, and only people who hold the stock at the time the lawsuit is filed are eligible to be a party to the civil action, said Bill Lerach, the attorney who filed the Crown suit. During an unprecedented bull market, Lerach said, Crown shares have plunged from a high of $41.75 in 1988 to just above $8 today, and the dividend has been eliminated. The company has lost money almost every year, and shareholders' equity has fallen by $130 million, according to the lawsuit.

These financial travails are the fault of Rosenberg and his two sons, the lawsuit claims. The Rosenbergs control the board, and handpick its 10 members, because they own more than half the company's Class A shares and 16 percent of the Class B shares, the lawsuit says. This means the Rosenbergs have a captive board that's virtually guaranteed not to move against them, the lawsuit says.

Among other allegations:

The senior Rosenberg uses the corporate jet to fly to horse races and car races -- at a cost of $1,000 per hour.

Millions were lost because one of Rosenberg's sons, Edward, speculated -- and lost -- in the oil futures markets.

The company wasted $21 million on a desulfurization unit at its Pasadena refinery -- only to scrap the project after discovering it would cost $80 million to finish.

Crown contends that the financial problems are due to a very difficult market in which gasoline is selling for its lowest price -- adjusted for inflation -- since the Great Depression.

Pub Date: 12/16/98

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